Financial topics

[Higgenbotham]

Getting the thread back to financial topics,....Higgenbotham, do you have an opinion of whether a person should buy PMs at this level?

First, as you guys know, I'm not surprised gold and silver are down from their 2011 highs. But I am surprised and puzzled as to why US stocks got over their 2011 highs. I just can't understand why no matter how hard I try. I mean, I can come up with the typical stuff like Apple but in the big picture I just don't get it.

Now silver has gone from $50 in late April of last year down to about $26.70 tonight and is sitting near its post $50 low from last year. To me, that's the easiest chart to operate with at this time. I still think that $26 low will break and then gold will follow silver down but not be as weak.

Getting back to stocks, the US stock market was about the only major stock market in the world to exceed its 2011 highs, maybe the only one. New Zealand is the only other one I know of but it didn't exceed its 2011 high by much. I still believe US stocks are going to crash. When they do, it should be about the same story as 2008 at first, but at some point I believe there will be a divergence and precious metals will begin to decouple and move higher while the rest of the financial system including the dollar goes down the drain. If I had to make a guess, I'd guess that silver will make its ultimate bottom at $14 and gold at $800. Meanwhile, I think things like oil will make lower lows than they did in 2008 before heading higher and the US stock market will ultimately go to zero.

Having said that, I find it very hard to say whether people should buy precious metals or not at these levels because the markets are getting more chaotic and harder to make sense of. We could see stocks crash and precious metals go down a little, then start going up fast.

[John]

> But I am surprised and puzzled as to why US stocks got over their
> 2011 highs.

I just posted an item on Germany's real estate prices -- going up to
bubble levels (just as everyone else's real estate bubble is bursting)
because Europeans are looking for safe havens for their money.

I think that's what's happening with both American stocks and
American bonds. When the Fed and the ECB pour liquidity into
the marketplace, it has to go somewhere, and those places are
German real estate, American stocks, and American bonds.

It's a real puzzle how this will end. What safe haven will
replace those three, and what will trigger the movement of
liquidity? I can guess, but I really don't know.

John

[vincecate]

I think that's what's happening with both American stocks and
American bonds. When the Fed and the ECB pour liquidity into
the marketplace, it has to go somewhere, and those places are
German real estate, American stocks, and American bonds.

It's a real puzzle how this will end. What safe haven will
replace those three, and what will trigger the movement of
liquidity? I can guess, but I really don't know.

So my guess is that at some point there will be so many dollars and Euros that we start getting inflation that is too high and rising. At that point bonds, stocks, and real estate are not good to be in as they all go down when interest rates are going up. So the liquidity will move to "inflation hedges" in a big way. Bond bubble will pop big time. The velocity of money will go up and prices will go up. Central banks will still have to buy bonds with new money because the governments keep making them and nobody else is buying. With huge numbers of short term bonds coming due (like $6 trillion in 12 month for US Treasuries) as well as huge deficits with most bonds being bought with new money by the central banks, we will get hyperinflation.

I am interested in hearing what other people guess will happen.

[Higgenbotham]

I just posted an item on Germany's real estate prices -- going up to
bubble levels (just as everyone else's real estate bubble is bursting)
because Europeans are looking for safe havens for their money.

I think that's what's happening with both American stocks and
American bonds. When the Fed and the ECB pour liquidity into
the marketplace, it has to go somewhere, and those places are
German real estate, American stocks, and American bonds.

It's a real puzzle how this will end. What safe haven will
replace those three, and what will trigger the movement of
liquidity? I can guess, but I really don't know.

John

I think you've accurately described what happened, maybe along with Canadian real estate, which I read is still in a bubble. As to why that happened, I haven't a clue.

Here's something I read today: "For some time the US markets have outperformed Australia even though the Australian economy is in far better shape." This is very true.

But for the first 4 months of this year, the money kept flowing into US stocks regardless. I can remember Achuthan being on CBNC near the high giving facts about how the US economy was in decline and people arguing with him when all he was doing was stating facts. Then, starting on May 1, all of the gains for the year were lost in 23 trading sessions.

[aedens]

People will never get it H or even begin to understand what we know. Rule number one if G pin was left on your bunk
you applied for transfer. The educated are last to admit when enough is enough. Some groups mature so consider yourself
lucky when they do. How many derivitives since 2008? Yea, why even ask anymore. People put how much diligence in on purchases?
Thought so.
update: BK summed it correct: I can’t wait to hear the howls from retail investors when this lesson is learned (it will be learned). When it does happen, those investors will blame Bernanke for forcing them into inappropriate investments. As well they should.

I will say a honest man cannot be cheated. We have all warned many here.

Every decent man is ashamed of the government he lives under.
H. L. Mencken

[vincecate]

velocityofmoney.png (27.18 KiB) Viewed 12845 times

I made a graph on Fred Graph to look at the velocity of money, quantity of money, and price level since 1959. I then posted about it on my blog.

http://howfiatdies.blogspot.com/2012/06 ... money.html

[Higgenbotham]

This is the reference I remember reading about losses Mike Burry incurred before the market turned.

By February 2007, subprime loans were defaulting in record numbers, financial institutions were less steady every day, and no one but Mike Burry seemed to recall what he’d said and done. He had told his investors that they might need to be patient—that the bet might not pay off until the mortgages issued in 2005 reached the end of their teaser-rate period. They had not been patient. Many of his investors mistrusted him, and he in turn felt betrayed by them. At the beginning he had imagined the end, but none of the parts in between. “I guess I wanted to just go to sleep and wake up in 2007,” he said. To keep his bets against subprime-mortgage bonds, he’d been forced to fire half his small staff, and dump billions of dollars’ worth of bets he had made against the companies most closely associated with the subprime-mortgage market.

http://www.vanityfair.com/business/feat ... rpt-201004

[Reality Check]

This is the reference I remember reading about losses Mike Burry incurred before the market turned.

By February 2007, subprime loans were defaulting in record numbers, financial institutions were less steady every day, and no one but Mike Burry seemed to recall what he’d said and done. He had told his investors that they might need to be patient—that the bet might not pay off until the mortgages issued in 2005 reached the end of their teaser-rate period. They had not been patient. Many of his investors mistrusted him, and he in turn felt betrayed by them. At the beginning he had imagined the end, but none of the parts in between. “I guess I wanted to just go to sleep and wake up in 2007,” he said. To keep his bets against subprime-mortgage bonds, he’d been forced to fire half his small staff, and dump billions of dollars’ worth of bets he had made against the companies most closely associated with the subprime-mortgage market.

Based on that quote it would appear he did predict the period between 2005 and the end of 2007 accurately.

Granted he might have made more money if his investors had not forced him to liquidate some positions in early 2007 rather than late 2007, but the stress was from people who second guessed his rather conservative bets, not because his predictions related to the financial crisis were wrong as to scope or timing.

In 2005, betting against sub-prime, adjustable rate mortgages ( then valued as AAA investments ) where the borrower had no chance of making the monthly payments once the teaser period expires, is no risk at all, unless Sol goes nova or some similar unrelated disaster occurs during that two to three year period.

[aedens]

http://21stcenturylibrary.com/2011/02/2 ... marketing/

[aedens]

Same tired fiat discussion Vin.
Fiat has the intrinsic value of zero on a long enough time line.
What is the value of a suit based on a ounce of gold for normal people who understand value backed by gunpowder and thug lunatics starving others in zones on the earth to comply. Since gold is for Kings, silver for gentlemen and barter mixed with Fiat for debt slaves. So, we just as the central bank knows, we have a political economy and those who owned and operated businesses know who and why the people have a problem with Governments as Bankers revolving door reality. We understand Senators cannot run banks since they are to evil to balance a checkbook and are smart as every one else it appears on the planet.
Since analog to digital production, which has been implemeted and the taxpayer base is being looted and later percieved what stage are we at. Honest men cannot be cheated so some are preparing for the lunatics here and abroad with water, wheat, and barter networks. The Federal Goverment does not
represent the people since they ignore the constitution at our peril. They wish to become Eurocrats as we have become as we warned in 1980 and you cannot do a damn thing about it because red and blue are spineless debt serfs. We work hard with our own hands. When we are cursed, we bless; when we are persecuted, we endure it.

The New deal was a Takeover based on what Article of the based Constition to Wickard v. Filburn, 317 U.S. 111 (1942), United States Supreme Court decision that recognized the power of the federal government to regulate all economic activity.
A farmer, Roscoe Filburn, was growing wheat for on-farm consumption. The U.S. government had established limits on wheat production based on acreage owned by a farmer, in order to drive up wheat prices during the Great Depression as people starved in Chicago, and Filburn was growing more than the limits permitted. Filburn was ordered to destroy his crops and pay a fine, even though he was producing the excess wheat for his own use and had no intention of selling it. A good program to watch is Black Blizzard on policy and errors of productions base. No, we know what is going on and even some politicians are seeing agenda based on they are educated beyond the ability think.


nominal value / real value = P x Q / Q = P